March 18, 2015 by Dymphna 32 Comments

Thought bubbles and tears for young buyers


Hockey is just the latest politician in a long line who want to pump demand to try and cure ‘affordability’. It’s a weak option, but in many ways, the only option he has.

“Won’t somebody think of the children?”

Seems poor first home buyers are everybody’s favourite tear-jerker.

Stories of struggling young families being priced out of the housing market attract universal sympathy.

No one would say that they didn’t care about first home buyers.

(Except maybe Cory Bernardi, who told them this week to take a teaspoon of concrete and harden up.)

But no one is really prepared to do much about it.

Joe Hockey was the latest politician to play caring fairy god-mother last week. His idea – just an idea, not policy yet – is to allow first-home buyers to dip into their super to buy their first house.

After leaning to one side and releasing this ‘thought-bubble’, it got a pretty mixed reception. Abbott was standing by his man. He thought it could be part of the policy mix.

Turnbull on the other hand said it was a “thoroughly bad idea.”

And a lot of people in the press have had a field day hacking into the “stupidity” of this idea.

So a few people have been asking me what I make of it all.

And look, to be honest, I’m not sure. If you’re looking for a post sticking the boot into dunderhead politicians – and I’d normally love to oblige – I’m sorry, but this isn’t going to be the one.

The first point, is that this idea isn’t new. It’s been around for a while. Nick Xenophon was hoisting it up the flag pole in the middle of last year.

And there’s already a similar scheme in Canada – called the ‘Home Buyers’ Plan’ where first home buyers can take up to $25,000 out of their super and put it towards a deposit.

You can also tap super for a deposit in Singapore – but that’s one of the stated aims of super there – providing for retirement, medical expenses and housing.

And in a sense this proposal is the philosophical sibling of every affordability and housing policy we’ve seen over the past ten years – think first home owners grants and so on.

And the common thread here is that affordability is framed as a demand side issue. If people can’t afford houses then it’s because they don’t have enough money.

That is true, but it’s equally true to say that people can’t afford houses because houses are too expensive.

That’s equally true, but no one’s saying it.

So the government, could, in theory, attack ‘expensiveness’ rather than ‘affordability’.

Someone who really cared about children getting into homes could come up with policies that attacked house prices – that brought house prices down.

I’m not sure what those policies might be, but I know they’d be a bad idea. And I know they’d also be almost universally unpopular.

And this is one of the interesting quirks about this debate. Everyone wants housing to be more affordable. But no one wants houses to be cheaper and worth less.

And so what we tend to do is pick a group that pulls hardest on our emotional heart strings, and try and give them a leg up. A grant here. Super concessions there.

But it’s not clear that it works. Because if first home buyers are competing with other first home buyers, for first home buyer houses, then all you’ve done is raise the bar for all first home buyers.

No one is better off.

(Unless you’re selling the house. In that case prices go up and you’re much better off.)

And unless supply increases in response to this extra demand – and if it’s one thing we know about land is Australia is that the supply is totally constipated – then pumping the demand side only leads to increased prices.

It doesn’t improve affordability and it doesn’t improve ownership rates.

Our poor children have to continue living in cardboard boxes under bridges.

That’s the argument against these demand side policies anyway.

But it’s going to be more or less true depending on what extent the first home buyer market overlaps with the non-first home buyer market.

If first-home buyers only buy first home buyer houses then it would be true. And it is true that first home buyers probably tend to concentrate around certain price ranges. But I think the market is still pretty fluid.

And so I think these policies will give first-home buyers a slight edge over existing home owners looking to move. It’s probably not a huge factor, but when you’re struggling to pull a deposit together every bit helps.

And some people have criticised to concept of tapping super to invest in property. They say that we force people to save for retirement for a reason and we shouldn’t mess with it.

But I think that ignores the unique role houses play in our lifetime journeys of wealth. If we were talking about tapping super to buy white-goods I’d be dead against it.

But property is different. Property is probably the most powerful part of any portfolio. It is the Queen of chess pieces.

Because it gives you so many options. You can’t draw down the equity of a share portfolio. You can’t borrow against the accumulated value of your super.

A property is an investment in a young person’s future. It is not an irresponsible thing to do.

And for the active and savvy young investor, it’s a powerful ally.

And so in that sense, I think the proposal has some merit.

But this is the way the future’s going to look one way or another. Everyone will keep worrying about affordability. The government won’t want to bring prices down, and it will go on being hopeless at bringing new supply to the market.

Pumping demand then is the only option left.

What do you think? What impact will it have on the market?

Is this the right way to help first home buyers?

Or is Cory Bernardi right? Do FHBs just need to harden up and save harder?